Chewing tobacco
Continued strong cash flow
Typically American, chewing tobacco is a lifestyle product often associated with the great outdoors activities, such as fishing and hunting. Chewing tobacco is particularly popular in the southern US, where Red Man is one of the best known and enjoyed brands. The category is large, but declining.
Sales and earnings
Sales for the year declined by 2 percent to 1,063 MSEK (1,079), and operating profit declined by 6 percent to 326 MSEK (347). In local currency terms sales were flat. Higher average prices offset volume declines, while a weaker USD had a negative impact on reported operating profit. The operating margin was 30.7 percent (32.1).
Market
The market for chewing tobacco is estimated by Swedish Match to be 500 MUSD at retail level. Consumption in the US has been declining for many years, and volumes over the past several years have declined by 5-8 percent annually. Roughly 70 percent of sales are in the premium segment.
Swedish Match is the largest producer of chewing tobacco in the US, with a market share of approximately 44 percent*. The Company’s best known brands include Red Man and Southern Pride. The Red Man brand family includes several varieties, the latest of which is Red Man Silver Blend, a sugar-free product. Competitors in the market include Conwood (Reynolds American), National and Swisher. With declining consumption, manufacturers continuously strive to reduce their costs and adjust pricing in order to maintain profitability.
Chewing tobacco is sold in the same stores as other tobacco products, but convenience stores and low-price tobacco outlets account for the bulk of sales. Swedish Match produces chewing tobacco in Owensboro, Kentucky, in the same factory that produces moist snuff and pipe tobacco. Production is based on the same types of tobacco used in making cigars, grown mainly in Wisconsin, Pennsylvania, Latin America and parts of Asia. Swedish Match is able to achieve synergies in production, sales, and distribution, as the Company is present in most tobacco segments.
Other markets
Swedish Match has very limited sales of chewing tobacco products outside the US.
Outlook
Consumption is expected to continue declining near the historical level. Swedish Match will continue to focus on high product quality and effective market communication. The product area is expected to generate a continued strong cash flow.
*Source: ACNielsen
| Main brands |
| Red Man, Southern Pride, Granger Select and JD’s Blend. |
| Key data, MSEK |
2006 |
2005 |
2004 |
| Sales |
1,063 |
1,079 |
1,058 |
| Operating profit |
326 |
347 |
304 |
| Operating margin, % |
31 |
32 |
29 |
| Investments in property, |
|
|
|
| plant and equipment |
17 |
9 |
18 |
| Average operating |
|
|
|
| capital |
200 |
184 |
172 |
| Average number of |
|
|
|
| employees |
357 |
340 |
346 |
Consolidated Income Statement
